Chapter 13 - Distribution & Logistics

Part 5: Distribution Decisions
13. Marketing Channels and Supply

Chain Management
14. Direct Marketing and Marketing
Resellers: Retailers and
Wholesalers
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
Chapter 13
Marketing
Channels and
Supply Chain
Management
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved.
Chapter Objectives
1. Describe the types of marketing channels
and roles they play in marketing strategy.
1. Outline the major channel strategy decisions.
2. Describe the concepts of channel

management, conflict, and cooperation.
3. Identify and describe the different vertical

marketing systems.
Copyright © 2006 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 13-3
More …Chapter Objectives
1. Explain the roles of logistics and supply-chain
management in an overall distribution strategy.
2. Identify the major components of a physical
distribution system.
3. Compare the major modes of transportation.
More…Chapter Objectives
1. Discuss how transportation
intermediaries and combined
transportation modes can improve
physical distribution.
2. Identify and briefly describe the different

types of warehousing.
The Role of Marketing Channels in
Marketing Strategy
 Channels provide the means by which the firm
moves the goods and services it produces to
ultimate users
The Role of Marketing Channels in
Marketing Strategy
Facilitate the exchange process by cutting
the number of contacts necessary
Adjust for discrepancies in the market’s

assortment of goods and services via sorting
Standardize exchange transactions
Facilitate searches by both buyers and

sellers
Types of Marketing Channels
 Marketing channel - defined:
defined
 system of marketing institutions
 that promotes the physical flow of goods and
services,
 along with ownership title, from producers to
consumer or business user;
 also called a distribution channel
 Marketing intermediary:
intermediary
 wholesaler or retailer
 that operates between producers and
consumers or business users;
 also called a middleman
 Wholesaler is:
 marketing intermediary that
 takes title to goods and
 then distributes these goods further;
 also called a jobber or distributor
 Types of Marketing Channels
Consumer Goods
 Types of Marketing Channels
Business Goods
Services
 Direct Selling
Direct channel:
channel marketing channel
that moves goods directly from a
producer to ultimate user
Direct selling:
selling strategy designed to
establish direct sales contact
between producer and final user
 Channels Using Marketing Intermediaries
Producer to wholesaler to retailer to consumer
Producer to wholesaler to business user
Producer to agent to wholesaler to retailer to
consumer
Producer to agent to wholesaler to business user
Producer to agent to business user
 Dual Distribution:
Distribution
Network that moves products to a firm’s target
market through more than one marketing channel
 Reverse Channels:
Channels
Channels designed to return goods to their
producers
Channel Strategy Decisions
 Selection of a Marketing Channel

 Factors which impact the selection of a
marketing channel include:
Market factors
Product factors
Organizational factors
Competitive factors
 Factors influencing Marketing Channel Strategies
Characteristics of Short Characteristics of Long
Channels Channels
Market Business users Consumers
factors
Geographically concentrated Geographically diverse
Extensive technical knowledge Little technical knowledge and

and regular servicing required regular servicing not required
Large orders Small orders

Product Perishable Durable
factors
Complex Standardized
Expensive Inexpensive
Characteristics of Short Characteristics of Long
Channels Channels
Producer Manufacturer has adequate Manufacturer lacks adequate
factors resources to perform channel resources to perform channel
functions functions
Broad product line Channel control important
Limited product line Channel control not important
Competitive Manufacturing feels satisfied Manufacturer feels

factors with marketing dissatisfied with marketing
intermediaries’ performance intermediaries’ performance
in promoting products in promoting products
 Determining Distribution Intensity
 Defined:
 number of intermediaries through which a
manufacturer distributes its goods
 Intensive
 Selective
 exclusive
Distribution intensity
 Intensive distribution:
distribution
 channel policy in which a manufacturer of a
convenience product
 attempts to saturate the market
Distribution intensity type
 Selective distribution:
distribution
 channel policy in which a firm
 chooses only a limited number of retailers to
handle its product line
Distribution intensity type
 Exclusive distribution:
distribution
 channel policy
 in which a firm grants exclusive rights to a
single wholesaler or retailer
 to sell its products in a particular geographic
area
Legal problems of
exclusive distribution
Exclusive-dealing agreement:
arrangement between manufacturer and e-
marketing intermediary
that prohibits the intermediary from handling

competing product lines
Legal Problems with Exclusivity
Closed sales territories:

exclusive geographic selling
region of a distributor
Legal Problems with Exclusivity
Tying agreement:
Arrangement that requires a
marketing intermediary to carry items
other than those they want to sell
Credit & debit cards (Wal Mart sued
MC)
Who Should Perform Channel Functions?
Fundamental principle that governs channel

decisions
Channel members can shift

responsibilities for the performance of
certain marketing functions,
but they cannot eliminate central functions
Channel Management and Leadership
 Maintaining relationships
 Channel Captain:
Captain
a dominant and controlling member of a
marketing channel
Food industry:
 Food producer was captain (past)
 Today: Retail Giants (Kroger, Safeway…)
Channel Conflict
Horizontal Conflict
between different types of
marketing intermediaries that
handle similar products
disagreements among channel

members at the same level
Vertical Conflict
Channel members at different levels

find many reasons for disputes
Example:
when retailers develop private
brands to compete with producers’
brands or when producers establish
their own retail outlets or WWW Sites
The Grey Market
Grey Good: product made abroad

under license from a U.S. firm &
then sold in the U.S. market in
competition with that firm’s own
domestic output
Viewed by producers as
undesired competition
Achieving Channel Cooperation
effective cooperation among channel

members,
antidote to channel conflict
when all channel members regard

themselves as components of the
same organization
Vertical Marketing Systems (VMS)
 planned channel system designed to
improve distribution efficiency and cost
effectiveness
 by integrating various functions throughout

the distribution chain
Forward integration
Backward integration
Forward integration
Controls downstream distribution

Example:
Mfg sets up own retail chain to
sell its products
Liz Claiborne
Backward integration
Mfg gains control over inputs in

production process
Acquisition companies
Raw materials producers
Benefits of VMS
Control & coordination of steps in
Production & distribution
Economies of scale
Expansion into new businesses

May lose some flexibility in market
response
3 categories of VMS
 Administered marketing system:
system
VMS that achieves channel
coordination when a dominant
channel member exercises its power
 Corporate marketing system:

system
a VMS in which a single owner
operates at each stage in its
marketing channel
3rd category of VMS
 CONTRACTUAL marketing system: system

VMS that coordinates channel
activities through formal agreements
among channel members like:
Wholesaler-Sponsored Voluntary
Chains
Retail Cooperatives
Franchises
Logistics
 Requires supply chain management
 Control of activities
Purchasing
Processing
Delivery
Mfg of products
Distribution of goods to final
consumer
Logistics and Supply Chain Management
Supply chain:
chain sequence of suppliers
that contributes to the creation and
delivery of a good or service
A.K.A.: Value Chain

Upstream management
Downstream management
 Figure 13.6
The Supply Chain of a Manufacturing Company
Tools of Supply Chain Mgmt & logistics
Radio Frequency Identification

(RFID)
Technology that uses a tiny chip
with identification information that
can be read by a scanner using
radio waves from a distance
Enterprise Resource Planning

Software system that consolidates data
among a firm’s units
Concerned with production issues

sequencing & scheduling
Scheduling delivery of Halloween
candy
 Outsourcing to specialist firms
 Logistical Cost Control

Third party (contract) logistics firm:
company that specializes in handling
logistics activities for other firms
TRW
Airport security
Uniform & cleaning supplies
Physical Distribution
 A company’s physical distribution system

contains the following elements:
Customer Service
Transportation
Inventory Control
Protective packaging and materials
handling
Order Processing
Warehousing
 Figure 13.7
Allocation of Physical Distribution Expenditures
Physical distribution issues:
Situation:
Seek specified level of customer
service to minimize cost of physical
movement & storage
The Problem of Sub-optimization
Setting Customer service standards
Physical distribution issues
 The Problem of Sub-optimization
Condition that results when individual
operations achieve their objectives but
interfere with progress toward broader
organizational goals
Introducing a new product that doesn’t fit

easily into current physical distribution
system
Physical distribution
Customer Service Standards

Statement of goals and acceptable
performance for the quality of
service that a firm expects to deliver
to its customers
Physical distribution components
Transportation
Warehousing
Customer service
Order processing
Administrative costs
Inventory control
See figure 13.7 – p. 434

TRANSPORTATION
Largely deregulated
Largest logistics cost
Adds 10% of cost to product
Transportation rates
Class Rate
Standard rate for commodity
moving between any 2
destinations
Commodity Rate
Favored rate
Lower rate as a reward for regular
business or quantity shipment
Classes of Carriers
Common carriers
move freight via all modes of
transportation for the general public
Contract carriers
do not serve the general public
Private carriers
do not offer services for hire,
but provide transportation services
solely for internally generated freight
 Major Modes of Transportation
Railroads
Motor Carriers
Water Carriers
Pipelines
Air Freight
Freight Forwarders and Supplemental
Carriers
Intermodal Coordination
Piggyback, birdy back, fishyback
(p. 438
 Comparison of Transport Modes
Mode Speed Depend- Frequency of Availabil- Flexibility Cost

ability in Shipments ity in in Handling
Meeting Different
Schedules Locations
Rail Average Average Low Low High Average

Water Very slow Average Very low Limited Very high Very low
Truck Fast High High Very Average High

extensive
Pipeline Slow High High Very limited Very low Low
Air Very fast High Average Average Low Very high
Warehousing
Moving products through

physical facilities
Two types
Storage
Distribution warehouses
Warehousing types
Storage warehouse
Holds goods for periods of time
To balance supply & demand
Distribution warehouse
Store mdse less than 24 hours
Central distribution warehouses
 Break bulk centers
 Wal Mart’s distribution centers
Automated Warehouse Technology
Distribution costs can be cut and

customer service improved
Labor saving devises for high
volume distributors
Reduces worker injuries
Reduces stealing, fires, &
damages
Warehouse locations
Major decision
2 factors influence decision
warehousing & handling Costs
Delivery costs
Large facilities = economies of scale
Impacts customer service
Speed & accuracy
Inventory Control Systems
firms need to maintain enough
inventory to meet customer demand
without incurring unneeded costs for
carrying excess inventory
Just-in-time (JIT) production
Vendor-managed inventory (VMI)
 Order Processing
 Order fulfillment
 Activities
Credit checks
Keeping Sales records
Accounting entries
Locating & shipping orders
Stockout:
order for a product that is unavailable
for shipment or sale
Protective Packaging and Materials
Handling
Materials Handling:
set of activities that move
production inputs and other goods
within plants, warehouses, and
transportation terminals
 Protective Packaging and Materials
Handling
Materials Handling types:

Unitizing: process of combining
individual materials into large loads for
easy handling
Containerization: process of combining

several unitized loads into a single, well-
protected load
The end

Chapter 13 - Distribution & Logistics

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Part 5: Distribution Decisions

13. Marketing Channels and Supply

1. Outline the major channel strategy decisions.

2. Describe the concepts of channel

3. Identify and describe the different vertical

2. Identify and briefly describe the different

Adjust for discrepancies in the market’s

Facilitate searches by both buyers and

 Selection of a Marketing Channel

Extensive technical knowledge Little technical knowledge and

Large orders Small orders

Broad product line Channel control important

Limited product line Channel control not important

Competitive Manufacturing feels satisfied Manufacturer feels

that prohibits the intermediary from handling

Closed sales territories:

Fundamental principle that governs channel

Channel members can shift

but they cannot eliminate central functions

disagreements among channel

Channel members at different levels

Grey Good: product made abroad

effective cooperation among channel

antidote to channel conflict

when all channel members regard

 by integrating various functions throughout

Controls downstream distribution

Mfg gains control over inputs in

Expansion into new businesses

 Corporate marketing system:

 CONTRACTUAL marketing system: system

A.K.A.: Value Chain

Radio Frequency Identification

Enterprise Resource Planning

Concerned with production issues

 Logistical Cost Control

 A company’s physical distribution system

Introducing a new product that doesn’t fit

Customer Service Standards

See figure 13.7 – p. 434

Mode Speed Depend- Frequency of Availabil- Flexibility Cost

Rail Average Average Low Low High Average

Truck Fast High High Very Average High

Air Very fast High Average Average Low Very high

Moving products through

Distribution costs can be cut and

Containerization: process of combining

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